The Federal Reserve Cuts Rates

As expected, the Federal Reserve announced that they are cutting interest rates by ¼ of a percent. What was more important to the market was the guidance for future action which was decidedly skewed towards a less accommodative strategy.

What does this mean? It means that in all likelihood, the Fed will not ease as much as some are demanding and instead will be cautious as it cuts rates going forward. It's fair to say the Federal Reserve is looking for additional information on inflation before they continue on an easing path. 

Our view is that the interest rate cuts will not be as extreme as many people think as tax cuts and tariff resolution will likely positively impact economic growth. The odds of a recession are falling. We are investing on the assumption that we will see neutral interest rate policy or less tightening than market participants have projected. Portfolios are adjusted for this perspective.

See a summary of the policy decision in the article excerpts below.

***

Begin Quote

“The Federal Reserve has announced its second interest rate cut in a row, easing monetary policy as concerns grow about rising layoffs and economic fallout from the government shutdown.

Fed Chair Jerome Powell joined the 10-2 majority on the Federal Open Market Committee (FOMC) to vote for the quarter-point rate cut at Wednesday's meeting in Washington, DC.

Dissenting were Trump-appointed Fed Gov. Stephen Miran, who voted for a larger half-point cut, and Kansas City Federal Reserve Bank President Jeffrey Schmid, who voted to leave the policy rate unchanged.

The rare double dissent on opposing sides of the majority consensus highlights the widening divisions on the FOMC, where Powell acknowledges there are "strongly differing views" on the correct path forward.

Wednesday's decision takes the Fed's overnight rate down to a range of 3.75% to 4%, marking the second consecutive cut since September and taking the federal funds rate to its lowest since late 2022.

Wednesday's quarter-point cut was widely anticipated and already largely priced into mortgage rates, which have fallen in recent months and reached a one-year low of 6.19% last week, according to Freddie Mac.

"Mortgage rates moved down notably in advance of the Fed’s meeting, hitting their lowest level in more than a year, but further declines will depend on new developments," says Realtor.com® Chief Economist Danielle Hale. "Today’s dissenting votes show that the Fed is unlikely to see a majority support faster rate cuts absent a more substantial slowdown in economic activity."

In other words, the Fed's latest rate cut doesn't mean mortgage rates will automatically fall further.

Powell's comments at a press conference after the meeting may actually send mortgage rates higher in the short term, as he threw cold water on expectations for further cuts this year.

Highlighting the deep divisions among policymakers during this week's closed-door deliberations, Powell said, "there were strongly differing views about how to proceed in December.”

End Quote

Source: https://www.realtor.com/news/trends/fed-interest-rate-decision-jerome-powell-october-2025/